Posted Sunday, October 10, 2004; 12.57 BST
But every gold rush has winners and losers, and just turning up in China doesn't guarantee success. European executives, like others who are braving the China market, complain about the difficulties of navigating the country's bureaucracy with its ever-changing rules. As firms such as Nokia have found out to their sorrow, trying to sell the same product around China can quickly run afoul of huge differences in regional taste and custom. Competition between the foreigners flocking to China is now intense, and many are discovering that there's a wide gulf between the rhetoric about huge market potential and the reality of endless hassles and paltry returns on investment. "Of all the countries I've worked in, China is the most difficult, with bureaucracy gone mad," says Steve Clark, who recently returned to Britain after a 10-year stint, during which he set up a factory for AWBS Ltd., a Yorkshire-based manufacturer of steel buildings. "Any company going to manufacture in China now, unless they have a unique product or niche market, would find it very, very difficult to compete."
That's certainly true for the automakers who have piled into the country. Car sales have gone off a cliff since rising 70% in the first quarter of this year, and in the end will likely have risen by only 10% for the year as a whole. Production capacity, however, could expand by up to 30%, says Michael Dunne, president of Bangkok-based Automotive Resources Asia Ltd. That has forced down car prices as Chinese buyers hold off purchases to await even lower stickers. Shanghai Volkswagen, which started making cars in China in 1985, now builds 1 out of every 4 domestic cars sold in China at its two joint-venture plants. Yet in the past two years it has slashed prices of its top- selling model by 30%. And the Europeans aren't just being squeezed by big Americans like General Motors, which controls 11.5% of the market through its joint venture in Shanghai. Chinese companies like Geely, which used to make refrigerator parts, and BYD, which still makes artillery shells, are stamping out compacts so cheaply that they've forced nearly every maker to follow Volkswagen's lead and slash prices. "The Europeans are under a lot of pressure to hold their ground in China," says Dunne.
The growing push to produce and source in China is also making waves back home. Already, the E.U.'s trade deficit with China, which it says ballooned to $62 billion last year, is by far the biggest with any trading partner. And while Chinese imports mean lower prices for European consumers, they also threaten some European jobs in vulnerable labor-intensive sectors such as toys, low-end consumer electronics and textiles. On Jan. 1, a worldwide agreement governing textile trade is set to expire, and many European clothing firms are bracing for a surge of Chinese exports that could hurt them and their suppliers in countries such as Tunisia and Morocco. If those firms can show that such a surge is causing big job losses, they can demand that the E.U. invoke a "safeguard clause" and curb Chinese clothing imports. Already, the European Commission responds with fines when it believes Chinese imports are being "dumped" on the European market at below-cost rates. In the past, China has faced global action for its exports of handbags, color televisions, bicycles and cigarette lighters. But the number of new antidumping cases dwindled last year to just three, and a Commission spokeswoman says that less than 1% of Europe-China trade is affected by such cases.
Amid calls for tougher action, some are taking matters into their own hands. The Valencian town of Elche was long the capital of the Spanish shoe industry. But over the past two years, more than 50 shoe factories have closed because they couldn't compete with low-cost imports. Last month, hundreds of laid-off workers took to the streets in protest, some of them reportedly chanting "Chinese out." They attacked a truck full of shoes and set fire to a warehouse belonging to Chen Jiusong, a Chinese importer. Chen had arrived in Spain just two months earlier with hopes of starting a successful shoe-importing business like the one he and his wife had already set up in Poland. The fire gutted Chen's warehouse and destroyed everything. Tens of thousands of pairs of shoes, worth an estimated $1.2 million, now lie in blackened piles of ash. "Why did they burn my shoes? Spain is a democracy, I could not imagine this could happen here," says Chen, 47, who wasn't insured and is now $124,000 in debt to his suppliers. "This is a problem with globalization, but there is no reason to destroy my shop, my career." Fifteen people were arrested for taking part in the incident.
While some European firms, from Vuitton to Volkswagen, have had a presence in China for years, most date the current acceleration of business ties to 2001, when China joined the World Trade Organization. That spurred Beijing to begin liberalizing its markets and lay down clearer and fairer rules for all firms, Chinese and foreign alike. Now, business leaders hope that strengthening political ties will further spur trade — and give them an edge against American companies whose trade with China is a hot-button topic in the U.S. presidential campaign. Four of the ceos on Chirac's plane are from companies that make defense equipment, including Laurent Dassault, whose Dassault Group manufactures the Rafale fighter plane.
Anne Lauvergeon is also accompanying the French President. She's the CEO of Areva, a French nuclear-technology firm that is locked in a fierce competition with the U.S. company Westinghouse over an $8 billion contract to provide four next-generation nuclear reactors to China. Beijing is embracing nuclear power as an alternative energy source to coal and oil, and plans to build two reactors per year for the next 15 years. By 2020, China's energy czars estimate nuclear power will account for 4% of national electricity consumption, and installed nuclear reactors will be able to generate a whopping 36,000 MW — enough power to meet peak summer demand for the entire state of New York. The successful bidder is expected to reap a windfall of future contracts as the country moves to standardize its nuclear-power generation. Both Areva and Westinghouse have brand-new reactors on the market, but Areva has the advantage of having already sold one to Finland. "There's a lot at play," says Westinghouse president and CEO Steve Tritch. "We usually sell them in pairs, and at over a billion dollars a reactor, that's a lot of business for us."
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